On June 6, 2014 Colorado’s governor signed HB 14-1269 titled the “Marketplace Fairness and Small Business Protection Act”, which could turn out to be a bit of a misnomer. The bill enacts a rebuttable presumption of physical presence for out-of-state retailers for sales tax purposes only. Previously the state Department of Revenue had to show that an out-of-state retailer had a physical presence in Colorado before it could require the retailer to collect state sales taxes.
In recent months there has been speculation that Colorado’s Home Rule cities might use this new definition of nexus for inter-state sales, and apply it to inter-city sales by Colorado based companies. The result could be that many more businesses with sales of over $50,000 would be forced to collect city sales taxes, and file returns with a much larger number of cities than is presently the case. What is currently a very complex administrative problem for businesses could be made dramatically more so. Even though a taxpayer must still have a physical presence under HB 14-1269, that bill places the burden of proof on the taxpayer to demonstrate that he/she does not have nexus – in other words, to prove a negative. That’s an extremely difficult task.
However, the physical presence requirement would also be removed if HB 14-1348 ever takes effect. That bill amends a bill passed in 2013 (HB 13-1295) which was intended to conform Colorado law to the federal Marketplace Fairness Act. Sylvia Dion described this in her article “Colorado’s Marketplace Fairness – New Rules for Home Rules?” in July, 2013. The amendment made by HB 14-1348 would only take effect if the federal legislation is passed, but it specifies that all retail sales made within the state will be deemed to take place at the location of the buyer. This seems to imply that the retailer has a place of business in the same location as the buyer. But the primary purpose for passage of a federal MFA is to overturn the physical presence requirement of Quill, so that barrier to the assertion of nexus under HB 14-1269 would be removed. Therefore it could make the assertion of nexus even more difficult to rebut.
On the other hand, if the federal MFA were to pass in its current form, it is quite possible that Colorado would not qualify to adopt its features. That is because it is not clear whether HB 13-1295 succeeded in modifying Colorado law sufficiently to meet the requirements of the MFA. Without the participation of Home Rule cities, we don’t know if Colorado would qualify under the current MFA. The real question is whether the Home Rule cities would agree to allow the state sufficient authority over the administration of their taxes in order to meet the MFA’s demands.
So, at this point in time there are more questions than answers. This certainly was not the intent of the legislature, but it seems to be the result.
Other recent “Local Sales Tax / Home Rule Issues” posts by Keith Crichton, CPA:
- Colorado Statute of Limitations: Watch Dates in Home Rule Cities
- Colorado Redefines Nexus: The Law of Unintended Consequences
- Tenth Circuit Reverses Colorado Permanent Injunction
- Colorado Taxation of Cloud Computing or “SAAS”
- Colorado Home Rule Creates Nation’s Most Complicated Tax Rules
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